Federal & Pennsylvania Laws
UTMA/UGMA ACCOUNTS AND FINANCIAL AID CALCULATION
As of July 1, 2006, UTMA/UGMA investments, which have been converted to 529 college savings plans, prepaid tuition plans or Coverdell Education Savings Accounts will be considered an asset of the parent, not of the student for financial aid calculations.
Parental assets are includable in the financial aid calculation at no more than 5.64% of their value as opposed to student assets at a whopping 35%. That can make a big impact in qualifying for aid.
By moving those assets to a 529 plan, you may improve the chance your child will receive financial aid in the future.
PENNSYLVANIA TAX DEDUCTION FOR 529 COLLEGE SAVINGS PLAN
Pennsylvanians now have more reason than ever to invest in 529 College Savings Plans.
For the first time, retroactive to January 1, 2006, Pennsylvania taxpayers can take a state income tax deduction on contributions to 529 plans offered anywhere in the country of up to $13,000 a year, per parent (e.g. $26,000 per child per couple).
This law also eliminates the state income tax Pennsylvanians previously had to pay on investment gains if they had plans issued in other states. * **
KIDDIE TAX
The recent federal tax law raised the Kiddie Tax age limit to 19. Even after the child turns 19, the kiddie tax still applies to his or her investments if he or she is between 19 and 23 and a full time student.
Clients who have trust and custodial
accounts for children may see earnings on these accounts taxed at
their higher tax rates, rather than at their children's lower tax rates. This
may be another reason to consider 529 College Savings Plans.
**Withdrawals used for qualified educational expenses may be subject to income taxes, depending on the participant's state of residence.